Everything You Need to Know about 3Q Bank Earnings

J.P. Morgan, Wells Fargo, Bank of America, and Citigroup are four of the largest banks in the United States, and their performances are strong indicators of how the American economy is preforming. This week all four of these “powerhouse” banks released their third-quarter earnings reports. Here is a quick analysis and catch-up of the information contained in the earnings reports of J.P. Morgan Wells Fargo, Bank of America and Citigroup.

J.P. Morgan:

Concerning the good and the bad of the latest earnings reports from the three largest banks in the Unite States JPMorgan Chase & Co. (NYSE:JPM) posted earnings slightly under company projections. Coming in 2 cents short of both their own estimate and the consensus estimate of $1.38, J.P. Morgan posted earning of $1.36.

The good of this report is the fact that bank’s investment banking division posted a strong performance during this same period. Even better the summer activity in September aided in the investment banking division beating management’s guidance.

J.P. Morgan also offsets the news concerning the bank coming in under estimate by releasing information in the report that credit as higher reserve released added 2 cents per share to earnings. Charge-offs are guided to be under $5 billion for the full year with at least $1 billion in reserve released from its consumer banking.

JPM’s core net interest fell during the same period. The interest was decreased from 5 basis points to 2.59%, along with assets under management falling to 1.4% quarter over quarter, with flat loans. Litigation cost also posted higher than estimate. Cost was estimated at $750 million and came in at $1.1 billion.

Nonetheless taking the good, the bad, and the ugly with J.P. Morgan Chase & Company the end analysis is that J.P. Morgan shows to be well positioned from a quantitative overview of the bank’s comprehensive capital. A rise to 10.1% of the bank’s Basel III tier 1 common ratio was strong, but still came in short of the guidance of 10.5%.

Wells Fargo:

Wells Fargo strength is based on the bank being the biggest U.S. home lender. Wells Fargo’s performed as estimated while mortgage banking fees fell and lending posted narrowed margins.

Wells Fargo showed rises in income of 2.7% from $5.58 billion to $5.73. The rise translates to $1.02 a share from 99 cents during the previous year. Wells Fargo reported meeting the average estimate of Bloomberg’s analysts.

The bad concerning Wells Fargo’s report has to do with the declining net interest margin of Wells Fargo reaching its lowest point in two decades. The decline is a direct reflection of a shift in the housing market away from the high demands for refinancing that was the driving force behind profits in previous years. While trends have proven that the net interest margins will increase with rising interest rates, Wells Fargo will have to find a way to grow loans during this current period of low margins.

Other keynotes from the report are:

• All fall in third-quarter interest margins to 3.05%. The average estimate was 3.13%.
• Revenue increase from $20.5 billion during the previous year to $21.2 billion a 3.6% increase that beat the average estimate of $21.1 billion.

Citigroup:

Citigroup posted higher than expected financial results. A third quarter year-over-year net revenue posting of $20 billion is 4.6% ahead of Citigroup’s analysts’ estimate of $19.1 billion, moving away from the trend of the previous quarters that missed estimates by 2% and 2.6% respectively.

Citigroup also posted a 3.5% year-over-year improvement in income resulting in a net income of $4.1 billion. In direct correlation with this increase Citigroup posted adjusted per-share earnings in the amount of $1.15 surpassing the mean adjusted estimate of $1.12. Citigroup missed the adjusted per-share earnings the last two quarters as well.

Bank of America:

The story was similar to recent quarters for Bank of America (NYSE: BAC) which reported Third-Quarter 2014 Net Income of $168 million, on revenue of $21.4 billion. The results included a Department of Justice settlement of $5.3 billion pre-tax or loss of $0.43 per share. Earnings would have come in a $0.42 per share a significant increase over the $2.5 billion and $0.20 per diluted share in the year-ago period. Highlights for the bank included performance improvements in 4 of their 5 divisions and improved credit quality.

In the third quarter, the company reported stronger than expected trading revenue and showed progress in controlling expenses even as results were weighed down by large legal charges. Analysts had expected a loss of 9 cents per share, and so the banks loss of 1 cent per share after legal expenses was above expectations.